Uwe Petersen

Are we Doomed to
Secular Stagnation?

Limitations of Supply-Side
Economic Policies

Original German Title:
Säkulare Stagnation unser Schicksal?
Grenzen der angebotsorientierten Wirtschaftspolitik
Published 2014
Translated by: Word Converters Limited

Published 2014

ISBN -13: 978-1503319103

Dr. Uwe Petersen
Dubrowstraße 49, 14129 Berlin
Tel.: +49308014369, Email:

Introduction A. Secular stagnation and its manifestations I. What is secular stagnation? 1. Traditional secular stagnation 2. What caused the traditionally stagnating economic order to give way to a growth economy? 3. Capitalist secular stagnation 3.1 Ever-increasing discrepancy between economic savings and profitable economic investment opportunities. 3.2 How are surplus economic savings possible in relation to stagnating investment opportunities? 3.3 The tendency for rationalisation investments to outweigh consumer goods innovations and expansion 3.4 Ways of compensating for the demand gap in a national economy through wage increases, state spending, increasing consumer debt, capital exports and burning capital. 3.4.1 Ways of compensating for the demand gap in a national economy through wage increase 3.4.2. Ways of compensating for the demand gap in a national economy through state spending 3.4.4 Ways of compensating for the demand gap in a national economy by burning capital II. Stages of secular stagnation since the 1960s and the economic measures taken to combat its symptoms whilst simultaneously increasing the fragility of the economic system 1. The beginnings of modern secular stagnation following the end of the postwar reconstruction period 2. Stagflation 3. The end of the inflation within stagflation through deindustrialisation 4. The financialisation of the economy, and how it has degenerated into a casino III. The economic development of Japan as a model case of capitalist secular stagnation

B. Why is the present capitalist secular stagnation not recognised by prevailing neoclassical economic theory?

I. Individualistic ideology

II. Inadequate theory of the development of the relationship between economic supply and economic demand

III. Lack of understanding of the role of money in a primarily capital-market-oriented economy

IV. Inadequate theory of economic growth 1. Only seeming growth, once the impact on economic growth of costs for the protection of resources and the reparation of environmental damage are taken into account 2. False equation of economic growth with the improvement of general prosperity 3. The problematic equation of economic growth with improvements in general prosperity over the course of globalisation 3.1 Insufficient attention to the detrimental impact on general prosperity of the distribution of technical and economic know-how in the course of globalisation 3.2 Insufficient attention to the detrimental impact on general prosperit distribution in the course of globalisation

C. The need for a new understanding of the principles of a healthy economy and economic policy measures to combat secular stagnation and stabilise the economy

I. Improving market opportunities for all citizens by overcoming the entrenched practice of feudal inheritance which is incompatible with the system

II. The need to implement economic policy to align economic savings with real economic investment opportunities in order to overcome secular stagnation

III. The ‘re-naturalisation’ of the money and capital markets 1. The neutralisation of circulating government bonds in order to educe currency speculation instead of acquisition by central banks 2. Banking regulation 3. Regulation of the money market

IV. Limitations of globalisation

1. Reducing export and import surpluses

2. Better assignment of profit to operating facilities to ensure appropriate taxation 136

3. Empowering employees in order to protect jobs138

4. More state investment to fund collective needs and to prevent the unnecessary relocation of operations

D. Criteria of secular stagnation and necessary economic policy measures

I. Criterion: Higher savings than there are lucrative private sector investment opportunities in the real economy

II. Criterion: extreme inequality in the distribution of income and wealth

III. Criterion: very low interest rates

IV. Rising property prices due to increasing pressure to invest

V. Criterion: uneven balance of foreign trade

E. How economic policy is still only treating the economy’s symptoms and this is increasing its susceptibility to crises, as illustrated by the Merkel government

I. How the Merkel government’s economic and taxation policies are not reducing export surpluses and are thereby increasing the economy’s susceptibility to crises

II. How the German social security system encourages secular stagnation

III. How the Merkel government is exacerbating secular stagnation through insufficient public investment

V. Insufficient reduction of public debt in order to lessen the economy’s susceptibility to crises caused by speculation, and in order to act as a role model for other Eurozone counties

VI. The Merkel government’s lack of understanding of monetary policy in times of secular stagnation

Conclusion Biblography Author

On 21 November 2013 ‘Larry Summers, during a speech at the IMF’s annual research conference last week, stirred up a hornet’s nest by painting a picture of a future with chronically weak demand and sluggish economic growth: a phenomenon known as ‘secular stagnation’. He is not the first to point to such a scenario. Paul Krugman picked up on the ‘secular stagnation’ hypothesis from the early postwar period in his blog two years ago. Meanwhile, the specter of imminent deflation dominates especially the monetary authorities, since their opportunities to ban this danger by interest rate cuts and multiplication of money are vanishing. The prevailing neo-classical supply-side economic theory and policies do not understand the phenomenon and the causes of secular stagnation. Therefore their economic policies only fight the symptoms and, if they still work, they only boost capital market games and capital combustion, but at the same time increase the fragility of the economic system. The economic prosperity in Germany is paid with its export-surpluses and corresponding export of capital, by which the surplus savings are transferred abroad. Germany therefore displaces unemployment abroad. Since Germany nevertheless also fulfills all criteria of a secular stagnation, it is living economically on a volcano. The Merkel government does not understand the phenomenon of secular stagnation, the economic problems of the ailing European countries and the monetary policy of the European Central Bank, without which the euro-zone already would have collapsed. Therefore, Germany’s measures and economic postulates increase the risk of crisis, instead of fighting against its criteria and serving as a model for the smaller countries on how to overcome the economic crisis.

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